To open, or not to open? That was the question for most Atlanta offices during the latter half of 2020.
With vaccination programs in full swing, large companies and startups alike are asking a very different question in Q2 of 2021: How much space do we need?
Office real estate trends are still a moving target as we enter what (we all hope) is the waning part of the coronavirus pandemic. But we spoke with experts in commercial real estate and coworking to better understand what the future of office space might look like.
Health and safety are guiding most return-to-work decisions. But the search for space that is more fun, more convenient, and flexible is also making parts of Atlanta more desirable coming out of the pandemic.
The State of Class A and Class B Office Space
Cresa, the world’s largest occupier-only commercial real estate firm, has a unique perspective on where the Atlanta office space market is heading. Brooks Morris, principal at Cresa, spoke to Hypepotamus about how companies of various sizes are thinking, or rethinking, office space as we head into the second half of 2021.
In its Q1 market report, Cresa notes that Atlanta has 5.9 million square feet of sublease office space currently on the market and 7.2 million square feet of new construction underway.
“Everything was predicated upon vaccines. Large companies have the confidence now to actually pull the trigger (on real estate leasing deals and return to office dates),” said Morris.
But where exactly the market will land coming out of COVID is still a bit in flux. “Because landlords weren’t chasing a lot of deals this last year, there’s not a lot of understanding about where rates will end up.”
Morris says that rental properties, particularly Class A spots, have largely maintained their rates throughout COVID.
Atlanta, he said, has some unique advantages coming out of COVID that have helped keep rates steady. As a car-first city, fewer Atlantans rely on public transportation to get to work compared to places like New York and San Francisco. While we may locally complain about traffic, Morris notes this is helping more people return to the office safely this spring.
Secondly, announcements like Google adding 19 floors in Midtown and Microsoft breaking ground on a new HQ on the westside has helped subsidize a lot of the growth throughout the local commercial real estate market.
Now, Morris says it is all about the “flight to quality.” This means a search for less dense, more amenity-rich properties.
“Coming out of COVID, a lot of companies would rather have a little less space, but a higher quality space with the right HVAC systems and the right building support,” Morris said. “If employees are going to come to the office and aren’t staying at home, there’s going to have to be something different about the office experience,” added Morris.
In turn, Morris said that certain Class B spaces are hurting, largely because the convenience factor isn’t there. The “value play” of Class B space might not be enough as they try to compete with space that offers higher quality health and safety amenities and more convenient locations.
Pre-COVID, open office trends meant technology companies allocated around 150 square feet of office space per employee. “But you can only get so dense,” Morris explained, as it puts strain on the parking, HVAC, and elevators in a building. The focus post-COVID appears to be finding spaces with conference rooms or huddle rooms and collaboration spaces while de-emphasizing hot desks.
“At this point, I wouldn’t say that I’m worried about the market getting too tight and getting hot in Atlanta, where the rental rates are going to start increasing,” said Morris. “The commercial real estate market moves slowly and I think we’ve got maybe another 12 months or 18 months before we see how the behaviors of companies impact the long-term direction of rental rates.”
“Pro Working” as a Post-Pandemic Staple
Anish Michael, CEO of Firmspace, has seen firsthand how the flexible office space trend has moved from the startup world up into the professional services space. Prior to joining the Austin-based private office space company, Michael worked as a corporate and real estate lawyer.
Post-COVID, he sees this trend only continuing. Firmspace caters both to companies looking to downsize from larger commercial spaces without reducing headcount and individuals upgrading from at-home offices. “We feel like our model was geared towards a [post-COVID world] even before we knew what COVID was,” Michael told Hypepotamus. “We think we have a product that makes sense for where the office world is going post-pandemic.” Those professionals often work in law, financial services, real estate, private equity, and venture capital.
Under the ‘pro working’ model, Firmspace doesn’t have the communal seating or hot desk arrangement that might come to mind when you think of traditional coworking spaces. The focus, instead, is on creating spaces that foster deep work.
That elevated coworking vibe is apparent when you walk around Firmspace’s Buckhead office. Individual office suites and wings can be customized based on team size.
Firmspace is so bullish on the Atlanta office market they opened in the middle of the pandemic.
Rebuilding for Form, Function, and Safe Fun
Colony Square, a mixed-use destination located in the heart of Midtown, has transformed over the years to attract both 9-5 office workers and those enjoying weekend leisure time.
It’s owned by North American Properties (NAP), the developers behind the $1 billion mixed-use community Avalon in Alpharetta. For managing partner Tim Perry, NAP is focused on weaving “five-star hospitality into property management.”
And that just might be their key to success coming out of COVID.
Colony Square has seen its physical office occupancy return to over 55% as of April 2021, according to Perry.
For Perry, attracting people back to the space in 2021 is about rethinking all parts of the environment, from parking to dining options. “Colony Square is focused on delivering the best experience it ever has because as people return to the development, they are going to be the most excited they have been in a while – it is going to be an outstanding reunion,” Perry added.
While building owners put money into improving building operations and HVAC systems prior to COVID, they’ve now added new cleaning protocols, UV lights, and antimicrobial surfaces.
Additionally, COVID has forced Colony Square to rethink parking. “Parking is traditionally a very binary decision. You’re either a daily parker or you’re a monthly parker. Well, what if you’re now a ‘three day a week parker’ or a ‘two day a week parker’, at least for now.” Perry said that flexible employee parking options have been made available to tenants with a resounding welcome.
On top of health and safety changes, Perry said additional construction on the property is about making the return to work more fun and entertaining. “You don’t want to leave home isolation and go to the office just to feel isolated again,” he added.
A major part of getting people back into the Colony Square office space is ensuring that the local entertainment and food options are safe and attractive. The team has installed a large LED screen in the plaza for social distance movie nights and live-streamed events. They’ve also added new lunch-friendly restaurant options like Brown Bag Seafood, Sukoshi, and a new food hall opening this summer.
Tapping Local Innovators
You can’t go more than a couple of blocks in Midtown Atlanta without running into a new WeWork location. Throughout the pandemic, WeWork has looked for ways to add more flexible coworking options to help attract new tenants. This includes a WeWork On Demand pay-per-day model and WeWork All Access for existing members looking to change or scale based on new business needs.
“There’s been a lot of focus on how larger companies will return to work, but that’s one piece of the puzzle,” Hamid Hashemi, Chief Product and Experience Officer at WeWork, told Hypepotamus. “WeWork has always been a home to small businesses and entrepreneurs, and across the country, we’ve actually seen the highest levels of return to work from small business members who may not have the resources to support remote work indefinitely. This isn’t unsurprising and is similar to what the company saw when it first started 10 years ago in the wake of a recession – but it doesn’t get enough attention as the segment that is a key driver of our economy and reflects the need to return to work.”
Hashemi added that coworking spaces could fill an important gap for companies and teams burned out after a year of working from home. “Long-term remote work is proving to be draining on a company’s culture and productivity, and WeWork is providing a solution to help these businesses return to the office safely so they can begin to reconnect and collaborate together again.”
Places like WeWork are quickly emerging as a “third space” for employees outside of the hybrid or work from home model. A recent survey suggests that 76% of c-suite executives are likely to provide employees with a stipend to go towards work from home settings or a coworking space.
WeWork has also tapped a local Atlanta entrepreneur to help keep their locations safe in the wake of COVID.
Physician 360, which started as an Atlanta WeWork Labs member, is a virtual urgent care and telemedicine platform for minor illnesses. “Early during the COVID pandemic onset, we quickly pivoted our business to offering CDC-prescribed covid screenings as part of our telemedicine practice, then rapid testing options as they became available,” Angela Fusaro, CEO of Physician 360, told Hypepotamus. Now, they have teamed up with WeWork to provide COVID-19 tests at a reduced price to members.
WeWork sees this partnership as a key way to get teams back together in an office space.
“Physician 360’s focus on at-home diagnosis and care has helped both WeWork and our thousands of member companies keep their communities safe while relieving pressure on the traditional medical facilities that have been overburdened,” added Hashemi.
It’s not just big names like Microsoft and Airbnb that are expanding or building HQ2s in the wake of the pandemic. Atlanta-based Austin DuBois, Southeast Lead for Workthere Americas, has seen an influx of companies growing their physical square footage through coworking spaces or flexible commercial office space in secondary cities over the last several months.
“It’s a common misconception that flexible office space is only used by startups,” said Head of Workthere Global Cal Lee in a recent white paper. “Our results show that the demographics of flex space vary widely by region.”
DuBois notes that real estate markets across the Southeast — particularly South Florida — have been natural beneficiaries of COVID migrations. If a financial services firm, say from New York, learns that several employees are planning on leaving the city temporarily or permanently, they are likely to utilize flexible office solutions in the markets they’re migrating to, in an effort to retain talent.
While office trends will certainly continue to shift as businesses react to post-pandemic realities, there are bright spots emerging in the coworking and flexible workspaces. Workthere’s white paper suggests that upwards of 82% of flexible office space are profitable from an operating profit margin level as of April 2021.